China Takes Wary Steps Into New Africa Deals

Premier Pledges More Business During Trip, but Beijing Shows More Caution

Chinese Premier
Li Keqiang
is using an official visit to Africa this week to pledge more loans and trade deals to governments that control the commodities and oil that Beijing needs to fuel its economy.

But Mr. Li's pledges so far—trade agreements with Ethiopia and an expansion of a credit line for African nations to $30 billion from $20 billion—belie the fact that China is taking a more cautious approach to the continent after a series of big loans and investments in resource deals over recent years haven't panned out.

China's foreign direct investment in Africa is falling. Chinese companies invested $2.5 billion in 2012, the latest official available figures, down from $3.2 billion in 2011 and a peak of $5.5 billion in 2008, according to China's Ministry of Commerce.

Beijing, meanwhile, is ramping up investments in big oil-and-gas and mining companies in the U.S., Australia and Canada. Developed nations accounted for 15% of Chinese foreign direct investment in 2012, double the share a decade ago.

China's big push into Africa, which began as its economy revved up more than a decade ago, has led to some successes. But it has also caused problems. Some African officials have berated China for acting like a colonial power. Deals have foundered amid claims that Chinese companies breached safety and environmental standards.

Other projects have gotten bogged down in the complexities of doing business in Africa.In some cases, China is trying to renegotiate contracts—many involving loans to build infrastructure in return for resources—that no longer make sense after commodity prices fell sharply from record levels.

"Chinese were out there throwing money at anyone who would take it, and a lot of strange decisions were made," said
Derek Scissors,
a resident scholar at the American Enterprise Institute in Washington. Now "they're not as frantic."

Nigerian Finance Minister Ngozi Okonjo-Iweala said her government has received more than half of a $3 billion loan for infrastructure signed last year, but the disbursements meant for passenger rail and agriculture have been slow to arrive. "They are taking their time," she said.

Africa clearly is still crucial to the world's second-largest economy. The continent supplies about a fifth of China's oil needs, second only to the Middle East, according to data from
BP
PLC. Some deals have worked well.
Jinchuan Group International
Resources Co.'s net profit jumped more than fourfold last year because of its $1.36 billion purchase in 2011 of a South African copper and cobalt miner. China National Offshore Oil Corp., or Cnooc, has investments in oil fields in Nigeria.

Mr. Li, in a speech to the African Union in Addis Ababa on Monday, vowed that trade between China and Africa would double to $400 billion by 2020, while China's cumulative investment in the region would quadruple to $100 billion. Still, there is growing tension with some African nations, which Mr. Li appeared to acknowledge.

The premier will travel to Nigeria on Wednesday to attend a World Economic Forum meeting, where he will speak on Thursday, before visiting Angola, one of China's largest suppliers of crude oil, and Kenya.

"China will never pursue a colonialist path like some countries did or allow colonialism... to reappear in Africa," the state-controlled Xinhua news agency quoted him as saying ahead of the trip.

A $3 billion Chinese loan to Ghana, signed in 2011, exemplifies some of the difficulties China is facing.

The loan from state-owned China Development Bank was meant to finance infrastructure projects, including building a pipeline to bring gas to Ghana from an offshore project. The loan was collateralized by Ghanaian crude production.

But only $600 million of the loan has so far been disbursed, Ghanaian officials said. As the price of crude oil has fallen, there have been disagreements over collateral. China has complained Ghana's government hasn't adequately prepared its infrastructure projects, local officials said.

Ghana's president,
John Dramani Mahama,
admits to some delays in projects and believes China is being more selective in its financing.

"China itself is changing its policy," Mr. Mahama said in an interview in Accra, the capital. "They are looking more at projects that have the potential to repay over time."

Mr. Mahama said the nation is looking at other ways to raise capital for infrastructure projects, including from investors in Brazil. China Development Bank hasn't commented publicly on the loan.

Chinese policy makers are getting choosier. In 2012, the state-owned Assets Supervision and Administration Commission, which manages state-owned enterprises, said it would hold executives to account for failed deals.

China Machinery Engineering Corp.
last year sold its stake in an iron-ore project in Gabon after five years of delays amid labor disputes and environmental concerns. Many other projects are never carried out.
Bright Simons
at Ghana's Imani Center for Policy and Education, a think tank, estimates that China has delivered less than 20% of investments pledged for Africa.

Some deals roll on without completion. On Tuesday,
China Railway Construction Corp.
said a unit had signed a $13 billion contract to build a railway in Nigeria, Reuters reported. The unit has been involved in similar deals with Nigeria for years, but the projects have faced delays, in part because of political changes in the country.

Some criticism of China focuses on its model for mining projects, which has involved importing labor and equipment, minimizing the boost for local economies. Nigeria's former central-bank governor,
Lamido Sansusi,
said last year that China was engaging in a "new imperialism in Africa."

Chinese-run mines in Zambia, meanwhile, have been beset by disputes over pay and conditions that have sparked clashes in which Chinese supervisors and workers died.

Chinese officials say the country deserves credit for helping Africa build its infrastructure. "These kinds of criticisms are absurd," said
Tian Xuejun,
China's ambassador to South Africa. "It is China who buys resources with a fair price under internationally recognized rules."

Some U.S. observers say African countries bear some blame for the region's reliance on natural resources to draw foreign investment.

"That's not neocolonialism," said
Deborah Brautigam,
director of the China Africa Research Initiative at Johns Hopkins University. "It's because African governments have not done enough to foster structural transformation in their countries."

—Chuin-Wei Yap and Liyan Qi in Beijing and Peter Wonacott in Pretoria, South Africa, contributed to this article.